In this mini-case you will complete the test of details on accounts receivable for the 2016 audit of EarthWear Clothiers, Inc. The principal test of detail involves sending "confirmations" or letters to customers so that they can confirm that they owe EarthWear the reported balance. All six customer accounts receivable balances exceeding $100,000 were targeted for testing. These six balances, aggregated total of $921,000, were confirmed without exceptions. The remaining accounts are of similar size and total $7,722,000 and will be tested via audit sampling. Inputs for the sample size determination were, Desired Confidence Level95%, Tolerable Misstatement$600,000, and Expected Misstatement$154,440. Based on these inputs, 67 accounts receivable balances were selected for confirmation requests. The first 63 accounts receivable confirmations have already been reviewed by other staff members and no errors have been found. The remaining four confirmations require your review as they were returned with notes from customers indicating a potential misstatement. Please note that legitimate timing differences do not result in misstatements.

1. Review the four confirmation responses in the PDF file downloaded from the mini-case website (a link is also provided below). Enter the information into Work Paper 10-1. For each confirmation response, please determine whether the difference noted by the customer represents a misstatement or a timing difference. After reviewing all four confirmations, please complete both the nonstatistical and the statistical evaluation options outlined on Work Paper 10-1 unless your instructor tells you otherwise. Chapter 9 of the text provides guidance on both nonstatistical and statistical evaluation. Please refer to Chapter 9 for a description of how to calculate a sample size and evaluate errors using IDEA. Please be careful as you enter your results from IDEA to the work paper as the items may not be listed in the same order.

Complete the worksheet below by reviewing the accounts receivable confirmation file contained in the Instructions. (Leave no cell blank - Be sure to enter "0" wherever required.)

Work Paper 10-1

EARTHWEAR CLOTHIERS Evaluation of A/R Confirmations December 31, 2016
Results of A/R Confirmations
Customer ID	Customer Name	A/R Balance per clients' records		A/R Balance per Customer	Difference per Customer	Reason(s) for Difference (i.e., timing difference, transposition error, cut-off error, mistake, etc.)	Amount of Misstatement
652-54310	Red Star Health Group	$	12,365	$	$		$
210-38725	Museum of Flight	$	14,235	$	$		$
254-62418	Summit Hills Country Club	$	24,362	$	$		$
179-26343	Central States Hotels	$	18,642	$	$		$
63 additional items		$	880,560	$ 880,560	$ 0		$ 0
Total Dollar Amount of Items in Sample		$	950,164	$	$	Net misstatement	$
						Total Dollar Amount of Items in Sampling Population	$ 7,722,000

Nonstatistical Evaluation of Errors (Round your percentage answers for "Ratio of Misstatements" to 4 decimal places. Round all other answers to the nearest whole dollar. Leave no cell blank - Be sure to enter "0" wherever required.)

Stratum		Book Value of Stratum			Book Value of Sample			Known or Factual Misstatement			Ratio of Misstatements in Stratum Tested*			Projected Misstatement**			Evaluation of Test Results
>$100,000		$	921,000		$	921,000		$				%		$
		$	7,722,000		$	950,164		$				%		$
								Total Projected Misstatement						$

Statistical Evaluation of Errors using IDEA Monetary Unit Sampling (Round you answers to 2 decimal places. Negative amounts should be entered with a minus sign. Leave no cell blank - Be sure to enter "0" wherever required.)

Results	Overstatements	Understatements		Evaluation of Test Results
Sample Size	67	67
Number of errors	2	0
Gross most likely error
Net most likely error
Total precision
Gross upper error limit
Net upper error limit

2. After completing both the nonstatistical and statistical evaluation methods, please briefly discuss how the results compare to each other in the space provided on Work Paper 10-1. Are the monetary amounts and overall conclusions similar?

Evaluation Method Comparison

EarthWear Red Star Health Group 3520 Lone Star DR Dallas TX 75212-6301 Dear Customers: Please examine the accompanying statement carefully and either confirm its correctness or report any differences to our auditors: Willis & Adams .. Box 4080 Boise, Idaho 79443-4080 who are auditing our financial statements. enclosed for your reply. Please do not send your payments to the auditors. Sincerely, Your prompt attention to this request will be appreciated. An envelope is Carol McKay Controller, EarthWear Clothiers CONFIRMATION: The balance receivable from us for $12,365 as of December 31, 2016, is correct except as noted below: CUSTOMER NAME Date 121/2017 Bv Print Name Position: A P.O. Box 787 - Boise, Idaho 83845 EARTHWEAR CLOTHIERS INC INTEROFFICE MEMORANDUM TO: FROM: SUBJECT: DATE: WILLIS & ADAMS, CPAS ACCOUNTS RECEIVABLE GROUP CUSTOMER CONFIRMATION ERROR: 652-54310 1/24/2017 RED STAR HEALTH GROUP Upon review of our documents and in consultation with the customer, we have determined the customer's records were correct. The correct balance is $12,356 as indicated by the customer on the confirmation request. EarthWear Museum of Flight 308 Air St. Dayton OH 45404-1808 Dear Customers: Please examine the accompanying statement carefully and either confirm its correctness or report any differences to our auditors Willis & Adams P.O. Box 4080 Boise, Idaho 79443-4080 who are auditing our financial statements. enclosed for your reply. Please do not send your payments to the auditors. Sincerely, Your prompt attention to this request will be appreciated. An envelope is Carol McKay Controller, EarthWear Clothiers CONFIRMATION The balance receivable from us for $14,235 as of December 31, 2016, is correct except as noted below: CUSTOMER NAME Date /17/30/7 Oliver Print Name: Ale Position: P.O. Box 787 - Boise, Idaho 83845 EARTHWEAR CLOTHIERS INC - INTEROFFICE MEMORANDUM TO: FROM: ACCOUNTS RECEIVABLE GROUP SUBJECT: CUSTOMER CONFIRMATION ERROR: 210-38725 DATE 1/21/2017 WILLIS & ADAMS, CPAS MUSEUM OF FLIGHT The customer's order was shipped FOB shipping point on December 31, 2016. The freight company confirmed their order was delivered January 2, 2017. The balance shown on the confirmation request of $14,235 is correct. Ex^mind sLippin' .wment ^nl ^'ree .tl E^rtlk.^r ^ssessment. DLJ 2l/2017 Summit Hills Country Club 236 Dudley Road Crestview Hills, KY 41017 EarthWear Dear Customers: Please examine the accompanying statement carefully and either confirm its correctness or report any differences to our auditors: Willis & Adams .. Box 4080 Boise, Idaho 79443-4080 who are auditing our financial statements. enclosed for your reply. Please do not send your payments to the auditors. Sincerely, Your prompt attention to this request will be appreciated. An envelope is Carol McKay Controller, EarthWear Clothiers CONFIRMATION: The balance receivable from us for $24,362 as of December 31, 2016, is correct except as noted below: CUSTOMER NAME Print Name: Gceg Simaa Position:_Pca P.. Box 787 - Boise, Idaho 83845 EARTHWEAR CLOTHIERS INC - INTEROFFICE MEMORANDUM TO: FROM: SUBJECT: DATE: WILLIS & ADAMS, CPAS ACCOUNTS RECEIVABLE GROUP CUSTOMER CONFIRMATION ERROR: 254-65418 1/22/2017 SUMMIT HILLS COUNTRY CLUB The payment was received from the customer on January 2, 2017. All balances were outstanding as of the end of 2016. customertoailn remIttAncE YEPort. Palment DLS /23/201 receive.^-^2 ,2017 EARTHWEAR CLOTHIERS INC INTEROFFICE MEMORANDUM WILLIS & ADAMS, CPAS FROM: ACCOUNTS RECEIVABLE GROUP SUBJECT: CUSTOMER CONFIRMATION ERROR: 652-54310 DATE:1/24/2017 CENTRAL STATES HOTELS - BEST WESTERN DEVELOPMENT DIRECTOR The customer service representative agreed to issue a $3,000 credit memo to the group when they called on December 29, 2016. The customer service representative inadvertently listed Western States Hotels which delayed processing of the credit memo until January 4, 2017. The credit memo was correctly attributed to Central States Hotels, but not until the next accounting period. The balance the customer listed of $15,642 is correct. EarthWear Red Star Health Group 3520 Lone Star DR Dallas TX 75212-6301 Dear Customers: Please examine the accompanying statement carefully and either confirm its correctness or report any differences to our auditors: Willis & Adams .. Box 4080 Boise, Idaho 79443-4080 who are auditing our financial statements. enclosed for your reply. Please do not send your payments to the auditors. Sincerely, Your prompt attention to this request will be appreciated. An envelope is Carol McKay Controller, EarthWear Clothiers CONFIRMATION: The balance receivable from us for $12,365 as of December 31, 2016, is correct except as noted below: CUSTOMER NAME Date 121/2017 Bv Print Name Position: A P.O. Box 787 - Boise, Idaho 83845 EARTHWEAR CLOTHIERS INC INTEROFFICE MEMORANDUM TO: FROM: SUBJECT: DATE: WILLIS & ADAMS, CPAS ACCOUNTS RECEIVABLE GROUP CUSTOMER CONFIRMATION ERROR: 652-54310 1/24/2017 RED STAR HEALTH GROUP Upon review of our documents and in consultation with the customer, we have determined the customer's records were correct. The correct balance is $12,356 as indicated by the customer on the confirmation request. EarthWear Museum of Flight 308 Air St. Dayton OH 45404-1808 Dear Customers: Please examine the accompanying statement carefully and either confirm its correctness or report any differences to our auditors Willis & Adams P.O. Box 4080 Boise, Idaho 79443-4080 who are auditing our financial statements. enclosed for your reply. Please do not send your payments to the auditors. Sincerely, Your prompt attention to this request will be appreciated. An envelope is Carol McKay Controller, EarthWear Clothiers CONFIRMATION The balance receivable from us for $14,235 as of December 31, 2016, is correct except as noted below: CUSTOMER NAME Date /17/30/7 Oliver Print Name: Ale Position: P.O. Box 787 - Boise, Idaho 83845 EARTHWEAR CLOTHIERS INC - INTEROFFICE MEMORANDUM TO: FROM: ACCOUNTS RECEIVABLE GROUP SUBJECT: CUSTOMER CONFIRMATION ERROR: 210-38725 DATE 1/21/2017 WILLIS & ADAMS, CPAS MUSEUM OF FLIGHT The customer's order was shipped FOB shipping point on December 31, 2016. The freight company confirmed their order was delivered January 2, 2017. The balance shown on the confirmation request of $14,235 is correct. Ex^mind sLippin' .wment ^nl ^'ree .tl E^rtlk.^r ^ssessment. DLJ 2l/2017 Summit Hills Country Club 236 Dudley Road Crestview Hills, KY 41017 EarthWear Dear Customers: Please examine the accompanying statement carefully and either confirm its correctness or report any differences to our auditors: Willis & Adams .. Box 4080 Boise, Idaho 79443-4080 who are auditing our financial statements. enclosed for your reply. Please do not send your payments to the auditors. Sincerely, Your prompt attention to this request will be appreciated. An envelope is Carol McKay Controller, EarthWear Clothiers CONFIRMATION: The balance receivable from us for $24,362 as of December 31, 2016, is correct except as noted below: CUSTOMER NAME Print Name: Gceg Simaa Position:_Pca P.. Box 787 - Boise, Idaho 83845 EARTHWEAR CLOTHIERS INC - INTEROFFICE MEMORANDUM TO: FROM: SUBJECT: DATE: WILLIS & ADAMS, CPAS ACCOUNTS RECEIVABLE GROUP CUSTOMER CONFIRMATION ERROR: 254-65418 1/22/2017 SUMMIT HILLS COUNTRY CLUB The payment was received from the customer on January 2, 2017. All balances were outstanding as of the end of 2016. customertoailn remIttAncE YEPort. Palment DLS /23/201 receive.^-^2 ,2017 EARTHWEAR CLOTHIERS INC INTEROFFICE MEMORANDUM WILLIS & ADAMS, CPAS FROM: ACCOUNTS RECEIVABLE GROUP SUBJECT: CUSTOMER CONFIRMATION ERROR: 652-54310 DATE:1/24/2017 CENTRAL STATES HOTELS - BEST WESTERN DEVELOPMENT DIRECTOR The customer service representative agreed to issue a $3,000 credit memo to the group when they called on December 29, 2016. The customer service representative inadvertently listed Western States Hotels which delayed processing of the credit memo until January 4, 2017. The credit memo was correctly attributed to Central States Hotels, but not until the next accounting period. The balance the customer listed of $15,642 is correct